What two purposes are accomplished by recording closing entries

Financial Accounting

Please make sure you answer all parts of the questions: 50 pts…..2 pts each question.

Question 1: If inventory errors are said to correct themselves, why are accounting users concerned when such errors are made?

Question 2: What two purposes are accomplished by recording closing entries?

1.

2.

Question 3: Explain how a business can earn a positive gross profit on its sales and still have a net loss.

Question 4: What accounting concept justifies charging low-cost plant asset purchases immediately to an expense account?

Question 5: Identify three events that might lead to the disposal of a plant asset.

1.

2.

3.

Question 6: Explain why writing off a bad debt against the allowance for Doubtful Accounts does not reduce the estimated realizable value of a company’s accounts receivable

Question 7: Identify four kinds of external users and describe how they use accounting information.

1.

2.

3.

4.

Question 8: Discuss the steps in processing business transactions.

Question 9: What is the general rule for cost inclusion for plant assets?

Question 10: Why would a company’s manager be concerned about the quantity of its purchase returns if its suppliers allow unlimited returns?

Question 11: When a store purchases merchandise, why are individual departments not allowed to directly deal with suppliers?

Question 12: (1) When do we know that a company has goodwill? (2) When can good will appear in a company’s balance sheet?

1.

2.

Question 13: List three ways sellers benefit from allowing their customers to use credit cards?

1.

2.

3.

Question 14: What are at least three questions business owners and managers might be able to answer by looking at accounting information?

1.

2.

3.

Question 15: What type of business is most likely to select a fiscal year that corresponds to its natural business year? Why?

Question 16: Why does the recordkeeper prepare a trial balance?

Question 17: Internal control procedures are important in every business, but at what stage in the development of the business do they become especially critical?

Question 18: How is unearned revenue reported in the financial statements and why?

Question 19: Why is the Modified Accelerated Cost Recovery System not generally accepted for financial accounting purposes?

Question 20: Why might a business prefer a note receivable to an account receivable?

Question 21: Why should responsibility for related transactions be divided among different departments or individuals?

Question 22: How does a company that uses a perpetual inventory system determine the amount of inventory shrinkage?

Question 23: Distinguish between cash discounts and trade discounts. Is the amount of a trade discount on purchased merchandise recorded in the accounts?

Questions 24: Why are incidental costs sometimes ignored in inventory costing? Under what accounting constraint is this permitted?

Questions 25: What are the limitations of internal control?